The Game of Thrones and the Game of Markets - W. Ben Hunt, Ph.D. Chief Risk Officer, Salient Partners LP May 15, 2014
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The Game of Thrones and the Game of Markets W. Ben Hunt, Ph.D. Chief Risk Officer, Salient Partners LP May 15, 2014
Disclosures
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2
The Game of Thrones (2014)
For illustrative purposes only.
3
The Game of Thrones (1968)
For illustrative purposes only.
4
The Lion in Winter
For illustrative purposes only.
5
Best Actor (Take One)
2
1
Bruce Dern
Christian Bale “Nebraska”
“American Hustle”
3
Matthew McConaughey
“Dallas Buyers Club”
4
5
Chiwetel Ejiofor
“12 Years a Slave”
Leonardo DiCaprio
“The Wolf of Wall Street” 6
Best Actor (Take Two)
2
1
Bruce Dern
Christian Bale “Nebraska”
“American Hustle”
3
Matthew McConaughey
“Dallas Buyers Club”
4
5
Chiwetel Ejiofor
“12 Years a Slave”
Leonardo DiCaprio
“The Wolf of Wall Street” 7
Best Foreign Film
2
1
“The Great Beauty”
“The Broken Circle
Breakdown”
3
“The Hunt”
4 5
“The Missing Picture”
“Omar”
8
The Game of Markets
“We have reached the third degree where we devote our intelligences to
anticipating what average opinion expects the average opinion to be. And there
are some, I believe, who practice the fourth, fifth and higher degrees.”
The General Theory of Employment, Interest, and Money (1935)
For illustrative purposes only.
9
The Power of the Crowd Seeing the Crowd
For illustrative purposes only.
10The Island of the Green-Eyed Tribe
On the Island of the Green-Eyed Tribe, blue
eyes are taboo. If you have blue eyes you
must get in your canoe and leave the island
the next morning.
But there are no mirrors on the island, so
you don’t know the color of your own eyes.
It is also taboo to talk or otherwise
communicate with each other about blue
eyes, so when you see a fellow tribe member
with blue eyes, you say nothing. As a result,
even though everyone knows there are blue-
eyed tribe members, no one has ever left the
island for this taboo.
A Missionary comes to the island and
announces to everyone, “At least one of you
has blue eyes.”
What happens?
For illustrative purposes only.
11Modern Missionaries
For illustrative purposes only.
12But Maybe We Should Be Doing More of This
For illustrative purposes only.
13To Avoid This
For illustrative purposes only.
14We are Suckers for a Good Narrative
For illustrative purposes only.
15What to Do When the Crystal Ball is Broken?
Recognize Your Weakness for a Good
Story
• Is the Narrative behind your decision
useful to your goals … or to theirs?
Put Game Theory in Proper Place
• Become a better game-player for tactical
investment decisions.
• Avoid game-playing for long-term, strategic
investments.
Consider New Ways of Looking at Old Narratives
• Add an informational perspective on Alpha, a dynamic perspective on Beta, and a
behavioral perspective on Epsilon.
• This is Adaptive Investing.
For illustrative purposes only.
16W. Ben Hunt, Ph.D. EpsilonTheory.com bhunt@salientpartners.com 4265 San Felipe, 8th Floor Houston, Texas 77027 Phone: 713.993.4675 Fax: 713.993.4698 salientpartners.com
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